The New Zealand dollar rose to a two-week high against its trans-Tasman counterpart after Australian inflation came in below expectations, leaving the Reserve Bank of Australia with room to keep interest rates on hold, while the local central bank prepares to hike rates tomorrow.

The kiwi rose as high as 92.65 Australian cents, the highest since April 10, trading at 92.53 cents at 5pm in Wellington from 91.72 cents yesterday. The local currency traded at 85.89 US cents at 5pm from 85.97 cents at 8am and 85.78 cents yesterday.

Australia's consumer price index rose at an annual pace of 2.9 percent in the first quarter, according to the Bureau of Statistics, below economists' forecast of 3.2 percent. The Australian dollar fell almost 1 US cent to 92.80 cents at 5pm in Wellington after the data, which leaves scope for the RBA to keep the target cash rate at 2.5 percent.

"The RBA will be quite comfortable on neutral, thus the Australian dollar got a little hammered," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "Australia's CPI was lower than expected, and we saw the kiwi/Aussie go higher."

Tomorrow the Reserve Bank of New Zealand announces rate review, where governor Graeme Wheeler is expected to raise the official cash rate a quarter-point to 3 percent, the second hike in as many months, as he looks to head off future inflationary pressures.

"In reality this is governor Wheeler's second hike into the cycle that he's telegraphed, you don't really want to upset the apple cart," Tuck said.

Traders will be watching for manufacturing indicators in the US and Europe in Northern Hemisphere trading after today's China reading showed an improvement in the world's second biggest economy.

The local currency was little changed at 88.07 yen at 5pm in Wellington from 88.05 yen yesterday, and traded at 62.19 euro cents from 62.18 cents yesterday. It was little changed at 51.04 British pence from 51.07 pence, and the trade-weighted index increased to 79.95 from 79.76 yesterday.